By Jim Shrine

Aradigm Corp. entered into a collaboration with Genentech Inc. to develop a pulmonary delivery system for Genentech's approved cystic fibrosis drug, Pulmozyme.

The goal is to deliver Pulmozyme using Aradigm's AERx technology, which would provide significant benefits to patients who now use a nebulizer to deliver the recombinant protein up to twice a day in sessions lasting up to 30 or 40 minutes each.

Specific terms were not disclosed. But the deal is structured differently than the $40 million deal Aradigm crafted with SmithKline Beecham plc for AERx delivery of morphine and the $50 million deal with Novo Nordisk A/S for insulin. At the same time, development should be easier with Pulmozyme, said Richard Thompson, president and CEO of Hayward, Calif.-based Aradigm, adding that the product should be taken directly into Phase II trials later this year.

Aradigm will get up-front and milestone payments during the development stages of the deal. It also will be responsible for all development through Phase III. Upon approval Aradigm would manufacture the product and sell it to Genentech. If certain sales goals are reached Aradigm also would be entitled to royalties, Thompson said.

"Typically, we try to collect 15 [percent] to 25 percent of the total revenue," he said. "Our two previous deals have been in that range. In this one we get a little less since it's a proprietary molecule."

Genentech, of South San Francisco, is providing Aradigm a loan that will cover development costs, Thompson said. That loan and its accumulated interest are less than the milestone amount that would be triggered upon product approval, and would be expected to be paid back at that time, he said. Aradigm also has the option to pay back the loan with stock.

Aradigm still could be responsible for paying back the loan if the companies are unable to develop a product successfully, depending on why the project failed, Thompson said.

"I think [this deal] propels us into the leadership position in the pulmonary delivery arena," Thompson said. "Next year it's conceivable we'll have between two and four Phase III programs going."

Pulmozyme (dornase alfa) now is delivered to patients' lungs as an aerosol mist via a nebulizer and compressor. The product was approved originally in 1993 and its label has been broadened a few times since then. The drug is designed to cut up and through thickened mucous secretions produced by the inherited lung disorder. Pulmozyme sales in the first quarter were $28.2 million, compared to $19.5 million in the comparable 1998 quarter. Sales for the full year in 1998 were $93.8 million.

Paul Laland, director of corporate communications for Genentech, said, "The Aradigm technology is based on a liquid formulation, which is similar to those used with nebulizers. If the system is successful it will give us more precise and reproducible delivery than the competing approaches. It fits well with our desire to enhance the standard of care and convenience for patients."

The AERx pulmonary delivery system is Aradigm's principal product. It is designed to create aerosols from liquid drug formulations for delivery locally to the lung or systemically through the lung.

Deal Could Broaden If System Succeeds

Terms of the companies' collaboration give each a right of first negotiation for other pulmonary-delivered products for cystic fibrosis (CF). Genentech said it was interested in evaluating the AERx technology for potential use with other molecules in development.

"That's one of the most interesting things to us about this program," Thompson said. "They have a pipeline of additional drugs they think pulmonary delivery might be useful for. It could go well outside of CF and into other therapeutic areas."

Thompson said Pulmozyme usage now is a "complicated and time-consuming procedure," and if AERx delivery of the drug is successful it would allow patients to get an equivalent dose in a couple of breaths rather than through long nebulizer sessions.

"It would give the patients a quality-of-life improvement that would be quite significant," he said. "It also would give [Genentech patent] protection that goes way beyond the orphan drug status [it] will lose in a couple of years."

Thompson said upcoming trials will have to show only that AERx delivery of Pulmozyme is equivalent to delivery by nebulizer. Improvement of lung function can be demonstrated relatively quickly, he said, and since safety is not an issue it should be a fairly fast development program.

Aradigm still has to complete the design of the device it plans to use for all its pivotal trials. Some analysts have projected the insulin and morphine products would be ready to go into pivotal studies around the middle of next year.

Aradigm and SmithKline Beecham, of London, are in Phase II trials with the AERx Pain Management System, for delivery of morphine for treating severe pain. And the company is in Phase II with Novo Nordisk, of Bagsvaerd, Denmark, with the AERx Diabetes Management System.

Aradigm has at least four other AERx projects ongoing, but specifics haven't been disclosed because long-term deals have not been signed, Thompson said. One of the projects - delivery of a macromolecule for respiratory disease - is about to go into Phase II trials, he said. The other deals, some in very early stages, involve delivery of a small molecule for respiratory disease; another small molecule for systemic delivery; and a gene delivery program being funded by the National Institutes of Health.

Aradigm's stock (NASDAQ:ARDM) gained 87.5 cents Wednesday, or 14 percent, to close at $7.125. Genentech (NYSE:GNE) fell $1.81 to close at $85.06.